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Hot Topic: Germany bans negative offshore bids

Monday, July 3, 2017

The German Bundestag banned negative offshore bids for the next tender and lowered the offshore bid price cap


The German Bundestag outlawed negative bids for the 1,6 GW offshore wind tender to be held in 2018. The lower house of Parliament amended the Wind Energy at Sea Act (WindSeeG) in an attempt to prevent spiraling into negative prices.

This development follows the April 2017 tender in which most of the capacity was awarded to zero subsidy bids (see news of 13 April 2017: ‘EnBW and DONG to build offshore wind farm without subsidies in Germany‘) and the announcement that Germany is planning joint wind-solar auctions (see news of 22 May 2017: ‘After zero subsidy offshore wind bids, Germany plans joint wind-solar tenders‘).

The changes

The German offshore tender mechanism awards subsidies to the lowest bid, without however allowing negative aid. The Bundestag’s action tries to prevent big players from being tempted to submit negative bids to win an auction, based on the assumption that they are able to do so because larger companies typically are involved in several projects and can thus spread their expenses, thereby undercutting and potentially excluding smaller players. The Bundestag also amended the price cap for offshore bids, reducing it from the current €120/MWh to €100/MWh.

Additionally, to be able to participate in the forthcoming two onshore auctions in 2018, bidders will be required to have a licence under Germany’s noise emissions legislation. These changes were warmly welcomed by the German Wind Energy Association – BWE (Bundesverband Windenergie).

The German Bundestag also approved a law enhancing the grid fee structure to gradually standardise grid fees across the country. Prior to the amendment, so-called “avoided grid fees” were paid to generators that provide electricity locally or in their region, avoiding the costs of power transportation over long distances. The new measure thus aims to address the problem of Eastern German States with high RES density, in particular wind farms, who are subject to higher grid fees than Southern German States. The amendment reduces payments to generators for “avoided grid fees” in existing plans, and imposes a ban on such payments for new volatile generation, like solar and wind power.

The German Minister for Economics and Energy, Brigitte Zypries, stated that this would “diminish regional differences in grid fees in the future and standardise grid fees for transmission grids gradually”. Grid fees will be gradually standardised across the country between 2019 and 2023.

European offshore wind auction trends

In the German April auction, two companies, Danish DONG Energy and German EnBW, won with zero subsidy bids a total of 1,38 GW out of the tendered 1,49 GW capacity, stirring up attitudes towards the way in which future European offshore wind auctions should be held. Statements followed from politicians of a number of European countries, most notably Belgium and the Netherlands, pledging an end to subsidies for offshore wind.

In Belgium, politicians are reconsidering discontinuing their support for the Belgian allocation scheme for future offshore wind projects, while in the Netherlands, developers with zero bids would be the first ones to receive a chance at the next auction for the 700 MW Hollandse Kust South 1 and 2 zones. Absent any zero bids, the Dutch authorities would proceed with the normal auction as scheduled.

The German ban on negative offshore bids and the grid fee structure reform come just before the Bundestag’s summer recess and the federal elections in September. Accordingly, the new rules that help avoid negative bids will be applied by the new government in the tendering round scheduled for 01 April 2018, where 1,6 GW of offshore wind will be auctioned, of which 500 MW will be allocated in the Baltic Sea.